Planning A Business Organization of a Business Copyright © 2004 South-Western. All rights reserved.

Learning Goals Identify key business stakeholders. Describe key business functions. Explain how to develop a business plan. Copyright © 2004 South-Western. All rights reserved.

Business Defined A business is an enterprise that provides products or services desired by customers. Copyright © 2004 South-Western. All rights reserved.

Key Business Decisions Product What type of product should be produced? Production How should the product be produced? Promotion How should the product be promoted? Financing How should the company obtain funds to finance the cost of producing the product? Copyright © 2004 South-Western. All rights reserved.

Business Decisions Copyright © 2004 South-Western. All rights reserved.

Key Stakeholders Owners Creditors Employees Suppliers Customers Entrepreneurs Co-owners Stockholders Creditors Employees Managers Suppliers Customers Entrepreneurs Organize, manage and assume the risk of starting a business Owners Share ownership by issuing stock to investors Creditors Provide loans and charge interest Employees Suppliers Provide materials used to produce products and services Customers Buy products that meet their needs and are priced fairly Copyright © 2004 South-Western. All rights reserved.

Interaction among Owners, Employees, Customers, Suppliers, and Creditors Copyright © 2004 South-Western. All rights reserved. Exhibit 1.1

Creating a Business Idea Identify a competitive advantage. Differentiate the product or service from competitors. Determine necessary resources. Assess feasibility of the idea. Identify a competitive advantage Recognize entrepreneur’s skills and experience Differentiate the product or service from competitors Find ways to distinguish offering from others Determine necessary resources Employees, workspace, machinery Assess feasibility of the idea Consider possible revenues, expenses, and profitability Copyright © 2004 South-Western. All rights reserved.

business online Copyright © 2004 South-Western. All rights reserved.

Success Stories Domino’s Pizza Managhans bought bankrupt pizza parlor Started with little funding Now generates sales of $1 billion per year Jeremy’s Micro Batch Ice Cream Applied microbrewery concept to ice cream Makes ice cream in small batches, sold in limited editions Glow Dog, Inc. Sells light-reflective clothing for pets After two years, average annual sales of $1 million Copyright © 2004 South-Western. All rights reserved.

Lessons to Remember Successful businesses do not require a great invention. Many focus on making life more convenient for customers. Some business ideas will fail—but entrepreneurs can learn from failures and make revisions. Copyright © 2004 South-Western. All rights reserved.

Impact of Technology Technology defined Information technology Knowledge or tools used to produce products and services Information technology Represents over 1/3 of the growth in U.S. output Reduces cost of producing products Workers in technology industries earn more than workers in other industries. Copyright © 2004 South-Western. All rights reserved.

Impact of Technology E-business or e-commerce Use electronic communications to produce or sell products and services Sales to individual customers B2B e-business: transactions between a business and its suppliers Generates $301 billion in revenue and creates 1.2 million jobs each year Copyright © 2004 South-Western. All rights reserved.

Successful E-Businesses Started out small Created to sell a product or service that was not offered by competitors Transformed how traditional firms conducted business Improved communication with customers Improved information flow Improved efficiency Complemented traditional business operations KPMG study found that 87 percent of firms are using e-business to improve their efficiency Copyright © 2004 South-Western. All rights reserved.

E-Business Examples Amazon Yahoo! eBay Online seller of books, music and other products Low overhead costs allow price discounting Yahoo! Internet search engine and the most visited site on the Web Offers variety of services - free email, web page hosting, custom-designed start-up pages Generates revenue by selling advertising eBay Online auction service Copyright © 2004 South-Western. All rights reserved.

Key Functions of Business Management Means by which employees and other resources are used by the firm Marketing Means by which products and services are developed, priced, distributed, and promoted to customers Finance Means by which firms obtain and use funds for their business operations Copyright © 2004 South-Western. All rights reserved.

Key Functions of Business Accounting Summary and analysis of the firm’s financial condition Used to make various business decisions Information systems Information technology, people, and procedures that provide appropriate information to make effective decisions Copyright © 2004 South-Western. All rights reserved.

How Business Decisions Affect a Firm’s Earnings Copyright © 2004 South-Western. All rights reserved. Exhibit 1.4

Common Business Decisions Management Decisions What equipment is needed? How many employees should be hired? How can employees be motivated to perform well? Copyright © 2004 South-Western. All rights reserved.

Common Business Decisions Marketing Decisions What price should be charged? Should the product be changed to be more appealing to customers? Should the firm use advertising or some other strategy to promote its product? Copyright © 2004 South-Western. All rights reserved.

Common Business Decisions Finance Decisions Should financial support come from the sale of stock or from borrowing money or some combination? Should the firm attempt to obtain borrowed funds for a short-term or long-term period? Should the firm invest funds in a new business project? Copyright © 2004 South-Western. All rights reserved.

A Business Plan Detailed description of the proposed business Description of the product or service Types of customers the business would attract Competition Facilities needed for production Copyright © 2004 South-Western. All rights reserved.

Developing a Business Plan Assess the Business Environment Economic environment Industry environment Global environment Develop Management Plan Organizational Structure Production Human Resources Copyright © 2004 South-Western. All rights reserved.

Developing a Business Plan Marketing Plan Target Market Product Characteristics Pricing Distribution Promotion Financial Plan Financing Feasibility Copyright © 2004 South-Western. All rights reserved.

Online Resources Advice and basic information Financing Options Yahoo’s Small Business site American Express Small Business Administration Financing Options Quicken Small Business Garage.com The Elevator Business Planning Software Business Planning Software Outlines Text generation Forecasting Graphics Supplementary resources Copyright © 2004 South-Western. All rights reserved.

Assessing a Business Plan Potential revenue Potential demand for product or service Potential expenses Profit potential Copyright © 2004 South-Western. All rights reserved.

Expected Monthly Expenses of CHC Copyright © 2004 South-Western. All rights reserved. Exhibit 1.6

Expected Performance of CHC in the First Year Copyright © 2004 South-Western. All rights reserved. Exhibit 1.7